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Tuesday, May 19, 2015

Perhaps The Fiscal Situation Is Not So Tight, After All!

With all the discussion about Greece's running out of money, I have looked at this year's budget statistics and expected disaster. After all, Greeks allegedly had stopped paying taxes quite some time ago. Surprise, surprise --- I did not find disaster. Instead, I found what one could almost call generally good news (relatively speaking, of course).

First, one has to clarify what one is looking at. The numbers which really matter are the "General Government (consolidated)". Those are the numbers which the Institutions (formerly Troika) are looking at for compliance purposes. The General Government consolidates the "State Budget", the "Extrabudgetary Central Government", the "Local Governments" and the "Social Security Funds". The State Budget is obviously the largest part of the total in terms of revenues/expenses (followed by Social Security Funds).

The Ministry of Finance makes two monthly publications: the "State Budget Execution" and the "General Government Monthly Bulletin". For an outsider, it is next to impossible to understand the consolidating/reconciling items between the various government sectors, so it is best to simply look at the General Government (consolidated) and also at the State Budget (in oder to get a better understanding for the General Government (consolidated)).

Did the General Government run out of money in the 1st quarter of 2015? Nope, by far it didn't. Instead, it recorded a primary surplus of 1,2 BEUR. However, relative to the previous year there was a substantial decline from 2,4 BEUR. Whether or not this is a deterioration or whether it is perhaps due to extraordinary items in the earlier period cannot be said.

It stands out, however, that the primary surplus of the State Budget nearly doubled since a year ago (from 835 MEUR to 1.636 MEUR). It was the significant underperformance in the other 3 sectors (particularly Social Security Funds) which caused the overall decline.

Two items really matter when looking at such figures: the comparision with the same period of the previous year and the comparison with budget. Since this level of detail is not provided for the General Government (consolidated), I will turn to the State Budget for January-March 2015.

The State Budget recorded a primary surplus of 1.732 MEUR. This is better than both, the 1.541 MEUR of the previous year and the 1.613 MEUR of the budget. Everything wonderful? Not quite.

We have all read that Greeks allegedly stopped paying taxes. The numbers do show a tax revenue problem but it is not scary because ordinary tax revenues were at just about the same level as the previous year. However, according to budget they should have been 587 MEUR higher. When considering that Greece had non-budgeted tax revenues in the first quarter (tax amnesty), it is clear that there is an issue of tax revenues. Luckily, that could be covered up by EU funds which were 679 MEUR above budget. 

The expense side is eye-popping! Not only was ordinary expenditure (excluding interest) 516 MEUR below the previous year but even 1.343 MEUR below budget. So did Greece become a fanatic saver? Possibly a bit of a saver but clearly not a fanatic one: there are categories (like the military) where one could conclude that less money was indeed spent than planned. But: a little over 700 MEUR of 1st quarter expenditures are not shown in these figures because their payment was delayed (increase in arrears).

So what is the bottom line of all of this? My first caveat is that "one should not believe any statistic which one has not fudged oneself" and I did not fudge these numbers. However, one can indeed conclude that the fiscal situation is by far not as tight as one might have feared. If Greece were freed of debt service and if ceteris paribus, the government's revenues seem to well cover its expenses (other than debt service). And that almost sounds like an invitation to default... 

General Government Monthly Bulletin March 2015


  1. And Bloomberg thinks Greece has enough money for maybe two months ahead:

  2. That is also my understanding: that the real problem is debt servicing, and the Greek state is otherwise financeable for the time being. That does not alter the fact that the eurozone is determined to make Greece pay the remainder of its debts -- even if that destroys any chance of economic recovery and future viability of the economy. One is reminded of Shylock's insistence on his pound of flesh: this time, the villain is not a Jew but a German.

  3. The end of the post is like the last chapter of a detective in which that is unfolded what one was thinking during the entire book (in this case the post). Feels like a wonderful grandioso in a classical music composition.

    Mahler. He could have composed a great Greek Symphony, with choir. and this final end, based on this post.

    Such a relief to read what I wanted to read.
    I was doubting really about your intelligence, for the first time, in your Observing Greece.

  4. Needless to say, that this situation is the result of the evil policy taken by Samaras and Tsipras didn't change (as he had promiced).

  5. Pure nonsense !
    Internal default about 2 billion euros

    1. You either didn't understand the BBC article or my article, or both.

      There is a difference between liquidity and operational surplus. There was an operational surplus (before debt service) but the enormous debt service caused the illiquidity. Greece has defaulted on domestic obligations so that it could reduce the debt in the absence of obtaining new financing.

  6. Although you last sentence conveys a valid point, there is a miss: increase in arrears means stretching out payments to private sector suppliers, which will in turn will not be able to pay wages on time, and service taxation purposes. This practice on the government side can be considered as standard in the past too,when liquidity was an issue, but its leeway is short.

    1. You are absolutely right: the chain reaction of the government's not paying its domestic bills can be - and ultimately will be - destructive. But that was not my point.

      I looked at it from a pre-debt service perspective. My point was that, from a pre-debt service perspective, the government could have paid its domestic bills; it could even have reduced arrears instead of building them up.

      If Greece had, on February 20, signed on the dotted line, it would have received 7,2 BEUR and none of the trouble would have happened. But Greece was cocky at the time. The FinMin even bragged "I don't want those 7,2 BEUR!" Signing on the dotted line would have broken just about every campaign promise but it would have put the government in a perfect situation to negotiate a good long-term deal by June 30. They didn't understand that what matters is the final result (as opposed to some intermediate results).

  7. With this FM, I really think I'm going to forget my basic economics and international trade/negotiations knowledge, so let's better skip this part :-)
    Truth is that even from a pre-debt perspective, I doubt whether any Greek Govt which is addicted to piling up debt, no restructuring, no real structural reform, could eventually keep up with a surplus.
    This, is a long going discussion here in Greece - even if they write our ebt off completely, how far can we go on this Zastava???
    Thx for your prompt reply anyway...

  8. You can't say that Syriza did not achieve anything. After all the Troika is now called the Brussel Group and Tsipras is allowed to discuss political solutions with Merkel.

  9. The budget execution (April 2015) is not realistic.

    1) Arrears target rescheduled, from 2.5 bn to 1.5 bn in 2015. It's not sure if the 1.5bn target will partly achieved. In 2014 arrears target acc to programme, were 2 bn. 1.152 mil were given.
    The state budget financing needs are 528 mil

    Important? BoG central gov net borrowing:

    The budget execution (April 2015) is not realistic.

    1) Arrears target rescheduled, from 2.5 bn to 1.5 bn in 2015. It's not sure if the 1.5bn target will partly achieved. In 2014 arrears target acc to programme, were 2 bn. 1.152 mil were given.Arrears when paid at the end of the year are expenditures. If less paid -less added. Right?
    The state budget financing needs are 528 mil

    Important? BoG central gov net borrowing:

    There is a difference.

    2) Expenditures y to y are almost a 1 bn less.

    3) Government uses all cash from institutions, like munincipalities, pension funds,public companies to make repos and get a better financing, as a intragovernmental loan, which is not bad.However there is an issue for deposits level.


    Here the cash in 31.12.2014 2.6 bn. But 31.03.2015 800 mln. Today?

    5) The good: 380 mil came from debt repayments in 100 installments. Estimation for the year, more than 500 mil.
    There is however the need to cover the cost of the non reduction of supplementary pensions which is 1 bn. So again -500.

    6)As probably seen in BoG document above, the "Change in State accounts with the Bank of Greece" is -721 mln. Should be found?

    My sense is that the surplus is a deficit more than 1.5% of GDP.
    And still we haven't seen all the cash government handle.
    This is not a tidily budget.
    OK, due to negotiations but the overall effort is again 3% adjustment from a worse position.


  10. I post twice the 1, but am i generally wrong?


    1. Are you right/wrong? Who knows? Just yesterday I read an article (I believe it was in the Ekathimerini) which took the reported primary surplus of 2,1 BEUR until April totally apart and came to the conclusion that, when all proper adjustments were made, it was actually a primary deficit of 1,5 BEUR. So someone is agreeing with you. I would only say this: if SYRIZA manages to convert a minus 1,5 into a plus of 2,1 for only 4 months, then SYRIZA is even more creative than its predecessor governments have been.